The information in this article is up to date for tax year 2024 (returns filed in 2025).
Owning a home comes with some great perks, especially when it comes to taxes. There are plenty of tax deductions for homeowners that can help you save money. From mortgage interest to property taxes, you have several opportunities to reduce your taxable income and maximize your refund. Whether you’re a first-time homeowner or have been in your house for years, understanding these key deductions and credits will ensure you’re making the most of the tax breaks available to you.
Key Takeaways
- Homeowners can save significantly with tax deductions like mortgage interest, property taxes, and home equity loan interest, especially if funds are used for home improvements.
- The home office deduction allows self-employed individuals to claim up to $1,500 per year, while medically necessary home improvements can also qualify for tax benefits if itemized.
- Investing in energy-efficient upgrades can provide a tax credit of 30% on qualified expenses, reducing your tax bill without refundable benefits.
Mortgage Interest Deduction
One of the most significant tax benefits available to homeowners is the mortgage interest deduction. This allows you to deduct the interest paid on loans secured by your principal residence or secondary residence, which can help reduce your overall mortgage payment. It’s a substantial saving, particularly in the early years of your mortgage when interest payments are at their highest.
For joint filers, the mortgage interest deduction applies to loans up to $750,000. If you took out your mortgage before December 16, 2017, you could be eligible for a higher limit of $1 million. Married couples who choose to file separately are allowed to deduct mortgage interest. This deduction applies to loans that are up to $375,000.
To claim this deduction, you’ll need Form 1098, which reports the total mortgage interest paid over the year. This form is typically provided by your mortgage servicer. Make sure to include this information when you file your tax return to deduct interest paid and maximize your savings.
Interest on home equity loans or HELOCs can also be deducted if the funds are used for home improvements. These loans count towards the overall mortgage interest deduction limits, so it’s essential to keep track of how much interest you’re paying. Additionally, the loan must be issued by December 31 to be eligible for the deduction on the following year’s tax return.
Property Tax Deduction
Property taxes are another significant expense for homeowners, but they come with a silver lining. You can deduct up to $10,000 in state and local taxes from your taxable income. This limit applies to single filers, while married couples filing separately can each deduct up to $5,000.
You can only deduct your portion of the property taxes, even if one party pays the full amount. This means that if you and your spouse own a home together and you pay the entire property tax bill, you can only deduct your half of the expense.
To qualify for the property tax deduction, real estate taxes must be levied for general community purposes. Taxes paid at settlement or through an escrow account can also be included in your tax deductions. However, local benefit assessments that enhance property value are not deductible.
Understanding these rules can help you reduce your tax bill significantly. So, keep good records of your property tax payments. Maximize your deductions—file your taxes with ezTaxReturn today!
Home Equity Loan Interest Deduction
Home equity loans can be a valuable financial tool for homeowners, especially when it comes to funding home improvements. The interest paid on these loans is deductible, but there’s a catch: the funds must be used for substantial home improvements. This means that if you use a home equity loan to build an addition or renovate your kitchen, you can deduct the interest.
However, it’s crucial to note that debt from home equity loans counts towards the total mortgage debt limit when calculating mortgage interest deductions. This means that the amount of home equity loan interest you can deduct may be limited based on your overall mortgage debt.
To take advantage of this deduction, make sure to use the funds appropriately and keep detailed records of your expenses. This will ensure you stay within the IRS guidelines and maximize your tax savings.
Mortgage Points Deduction
Mortgage points are an often-overlooked tax deduction that can provide significant savings for homeowners. Essentially, mortgage points are upfront fees paid to reduce the interest rate on a mortgage. By lowering your interest rate, you can save money over the life of the loan and reduce your overall mortgage payments.
The deduction process for mortgage points can be a bit complex. Generally, these points are deducted over the life of the loan, not fully in the year they are paid. However, if certain IRS requirements are met, you may be able to fully deduct the mortgage points in the year they are paid.
If you don’t meet the conditions for a full deduction, you can still deduct the points over the life of the loan. This means that each year, you’ll be able to deduct a portion of the points based on the loan’s term.
Home Office Deduction
With the rise of remote work, more homeowners are taking advantage of the home office deduction. To qualify for this deduction, you must be self employed, and the space must be used both regularly and exclusively for business activities. This means that your home office should be a dedicated area where you conduct your business or work-related tasks.
The simplified option for the home office deduction allows you to claim up to $1,500 per year. This option is straightforward and doesn’t require detailed expense tracking. The deduction amount is based on the size of your home office, with a maximum of 300 square feet.
If you prefer, you can use the regular method, which involves calculating the actual expenses of your home office. This method considers the size of your office in relation to the total home size. While more complex, it can result in a higher deduction if your expenses are significant.
To claim the home office deduction, you’ll need to use Form 8829. If your home office deductions exceed your income, the excess can be carried forward to future tax years. This can provide ongoing tax benefits, especially if you continue to work from home.
Medically Necessary Home Improvements
Home improvements made for medical reasons can also provide valuable tax deductions. To qualify, you must itemize your deductions on your tax return. This means that you’ll need to forgo the standard deduction and instead list all eligible expenses.
You can only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). This threshold can be challenging to meet, but if you have significant medical expenses, it can provide substantial tax savings.
Examples of medically necessary home improvements include modifications to make your home accessible for disabilities. These improvements must be for you, your spouse, or a dependent to qualify. Some expenses may be fully deductible, while others need to be adjusted based on the increase in property value caused by the improvement.
If a permanent home enhancement raises your property value, the deductible amount is reduced by the corresponding increase in property value. This ensures that only the portion of the expense that directly relates to medical necessity is deductible.
Energy-efficient Home Improvement Credits
Going green can also pay off at tax time. Certain energy-efficient home improvements qualify for tax credits, providing a direct reduction in your tax bill. Examples of qualifying upgrades include solar panels and energy-efficient windows.
You can claim 30% of the qualified expenses as a tax credit for these improvements. The limit for the tax credit for improvements made after January 1, 2023, is $3,200. This means that if you spend $10,000 on energy-efficient upgrades, you can reduce your tax bill by $3,000.
The energy-efficient home improvement tax credit is nonrefundable. This means it can reduce your tax liability to zero, but you won’t receive a refund for any excess credit. Ready to save more? File with ezTaxReturn and claim your energy-efficient home improvement credit.
Non-deductible Homeowner Expenses
Not all homeowner expenses are tax-deductible, and it’s crucial to know which costs don’t qualify. Common non-deductible expenses include mortgage payments, insurance, homeowner association (HOA) fees, utilities, and maintenance costs.
Additionally, costs incurred for services such as domestic help or home repairs are not tax-deductible. These expenses can add up, but unfortunately, they don’t provide any tax benefits.
Expenses related to property appraisal fees or inspections associated with mortgage loans are also non-deductible. Knowing which expenses don’t qualify for deductions can help you plan your budget more effectively and avoid surprises at tax time.
Summary
Understanding the various tax breaks available to homeowners can make a significant difference in your financial planning. From mortgage interest deductions to energy-efficient home improvement credits, these tax benefits can help reduce your taxable income and save you money.
By taking advantage of these tax deductions for homeowners, you can lower your tax bill and keep more money in your pocket. Remember to keep detailed records of your expenses and use ezTaxReturn to ensure you’re maximizing your savings. With the right knowledge and preparation, you can make the most of these valuable tax breaks.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
